Investing
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The 2025 FTSE Russell reconstitution completed its last annual event, creating opportunity in six stocks moving from Russell 2000 to the Russell 1000.
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Index fund rebalancing drives potential technical sell-offs, not fundamental issues, creating potential buying opportunities for long-term investors.
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The Impact of Index Rebalancing
London Stock Exchange subsidiary FTSE Russell completed its annual reconstitution effective after the market closed on Friday. It reshuffled U.S. indexes like the Russell 1000 and Russell 2000 indices based on market capitalization, style, and sector, which impacted the stock prices of hundreds of companies through the forced buying and selling of shares by index funds.
This process, critical for aligning indexes with market dynamics, often triggers sharp price movements as passive funds rebalance their holdings. There were an estimated $150 billion in trades made for this year’s rebalancing.
Smaller-cap stocks shifting to larger indexes or vice versa face significant price swings due to changes in fund ownership. Notably, 2025 marks the final annual reconstitution, as FTSE Russell transitions to a biannual schedule starting 2026, potentially amplifying future impacts.
The following six stocks were among the biggest stocks moving up from the small-cap index to the large-cap index.
Palantir Technologies (PLTR)
Palantir Technologies (NASDAQ:PLTR) experienced a sharp 9.4% drop on Friday, falling from $144 per share to below $131 per share, driven by its promotion to the Russell 1000.
Its $311 billion market cap, fueled by a 460% stock rally over the past year, necessitated the shift. Small-cap index funds, holding around 10% of PLTR’s float, sold heavily to exit the position, while large-cap funds began accumulating shares.
Jefferies estimated PLTR faced the highest dollar-value selling among reconstituted stocks. With first-quarter revenue up 39% to $883.9 million, PLTR’s AI-driven growth suggests recovery potential, even as it carries a lofty 570 P/E ratio.
Strategy (MSTR)
Bitcoin treasury company Strategy (NASDAQ:MSTR) stock saw elevated volatility on Friday as it moved from the Russell 2000 to the Russell 1000, reflecting its $105 billion market cap after a 156% surge over the past 12 months, driven by its Bitcoin (CRYPTO:BTC) holdings.
Small-cap funds sold around 10% of MSTR’s float, while large-cap funds purchased shares, contributing to an estimated $5 billion to $7 billion in trades. The crypto stock, however, fell less than 1% on Friday.
Yet MSTR remains joined at the hip with Bitcoin’s price movements, which current trades north of $107,700, meaning portfolio reconstitutions will likely have any laying impact on the stock.
Carvana (CVNA)
Online used car dealer Carvana (NASDAQ:CVNA) also moved up to the Russell 1000, propelled by a market cap exceeding $68 billion after a strong recovery in online car sales.
The Friday reconstitution triggered significant trading, with small-cap funds selling 8% of CVNA’s float and large-cap funds buying in, contributing to $3 billion to $5 billion in flows. Price volatility was notable, and CVNA stock jumped 4% higher. Its stock more than tripled in 2024 andis up another 57% through the first six months of 2025.
Sprouts Farmers Market (SFM)
Organic grocery store chain Sprouts Farmers Market (NASDAQ:SFM) moved to the Russell 1000 from the Russell 2000, driven by its $15.9 billion market cap and 164% stock rise in 2024, fueled by demand for health-focused groceries.
Last week’s reconstitution saw small-cap funds sell about 7% of SFM’s float, with large-cap funds absorbing shares, generating $2 billion to $3 billion in trades. Price swings were moderate, reflecting SFM’s stability with shares moving 1% higher..
First-quarter revenue grew 19% to $2.2 billion, supporting its appeal as well as the defensive nature of its business. Yetconsumer spending trends amid economic uncertainty will likely influence it moving forward.
Celsius Holdings (CELH)
Celsius Holdings (NASDAQ:CELH) makes fitness and energy drinks under the Celsius brand, and it joined the Russell 1000 as its market cap rosse to $11.8 billion on the back of a 74% gain this year.
The June 27 reconstitution prompted small-cap funds to sell 8% of CELH’s float, with large-cap funds buying, resulting in $2 billion to $4 billion in trades. Shares closed up 1% on Friday.
Celsius remains on a high-growth trajectory, with revenue last year rising 30% to $1.4 billion. Although it carries a high P/E of 146, its brand strength supports long-term growth.
Permian Resources (PR)
The sixth stock to get promoted to the Russell 1000 was Permian Resources (NYSE:PR), an independent oil and gas stock focused solely on the Permian Basin. While it has an $11 billion market cap, its stock fell 12% over the past year and is down 4.5% year-to-date. Its shares were down 1.3% on Friday.
The annual reconstitution led small-cap funds to sell 7% of PR’s float, with large-cap funds purchasing shares, contributing to $3 billion to $5 billion in trades. Price pressure from oil market uncertainty contributed to PR’s decline, but first-quarter revenue rose almost 11% even as production declined.
PR’s inclusion in the large-cap index boosts the energy stock’s visibility, but a lot will demand on consumer demand for future production and revenue growth.
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